PRESENTATION TO THE KENYA SCHOOL OF REVENUE …

017, MAHE VICTORIA, SEYCHELLES

PRESENTATION TO THE KENYA SCHOOL OF REVENUE ADMINISTRATION ON 8 APRIL 2021

THE AFRICAN CONTINENTAL FREE TRADE AREA (AfCFTA): OPPORTUNITIES AND CHALLENGES FOR KENYA

BY

WILLIE SHUMBA

SENIOR EXPERT AND ADVISOR, CUSTOMS

OUTLINE

• Background of the AfCFTA

• Signature, Ratification and Accession

• Protocol on Trade in Goods -Tariffs and RoO,

• Protocol on Trade in Services

• Dispute Settlement

• Opportunities, Threats and Implications

• Conclusion

BACKGROUND OF THE AFCFTA

KENYA

PROFILE OF KENYA• Population: 46 million

• Business orientated: business negotiators; skilled and educated populate

• Nairobi – modern and cosmopolitan city

• Natural resources: Wildlife, land, varied weather, tourist attraction

• Services: Tourism, Professional, Educational, ICT

• Agriculture Products: Tea, coffee, sugarcane, horticultural products.

• Industries:Consumer goods (plastic, furniture, batteries, textiles, soap, flour, cigarettes), agricultural products processing; oil refining, cement; tourism.

• Exports - commodities: tea, horticultural products, coffee, petroleum products, fish, cement.

• Imports - commodities: machinery and transportation equipment, petroleum products, motor vehicles, iron and steel, resins and plastics.

• Positioned in East Africa yet well connected with the rest of the continent, Asia, Middle East etc

Free Trade Area According to the WTO, a free-trade area shall beunderstood to mean

• a group of two or more customs territories

• in which the duties and other restrictive regulations ofcommerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV,XV and XX)

• are eliminated

• on substantially all the trade between the constituent territories

• in products originating in such territories.

Notes: Art XI and XIII deal with quantitative restrictions; Art XII with balance of payments; Art XIV deals with exceptions to the r ule of non-discrimination; Art XV deals with exchange arrangements; and Art XX deals with general exceptions.

Treaty Establishing the African Economic Community (The Abuja Treaty) 1991

Stage Activity

Establishment of RECs, strengthening the existing RECs in the 5

regions of Africa

Preparatory work on trade liberalisation with focus on trade barriers

Removal of tariff and non tariff barriers

continental customs union within a period of two years after the third

stage, that is by 2019

the establishment of an African Common Market - free movement of

factors of production by 2023

Establishment of an African Economic Community ie integration of

fiscal and monetary policies by 2028

African economic and political integration is based on the following 8 RECs

recognised by the AU:

1. Community of Sahel-Saharan States (CEN-SAD)

2. Common Market for Eastern and Southern Africa (COMESA)

3. East African Community (EAC)

4. Economic Community of Central African States (ECCAS/CEEAC)

5. Economic Community of West African States (ECOWAS)

6. Intergovernmental Authority on Development (IGAD)

7. Southern African Development Community (SADC)

8. Arab Maghreb Union (UMA)

Africa’s Regional Economic Integration Agenda

KENYA AND REGIONAL ECONOMIC COMMUNITIES

REGIONAL

ECONOMIC

COMMUNITIES

WHICH KENYA

BELONGS TO

EAC

AfCFTA COMESA

IGAD

TRIPARTITE

FTA

Why the AfCFTA?• Trade is a powerful engine for economic growth and development.Studies have shown a relationship between trade and economicgrowth and development

• However, Africa’s role in the global trade market has been providingraw commodities in exchange of manufactured goods, therebycapturing a minimal 3% of the global share of trade.

• In addition intra-Africa trade is just 15% of its total trade,compared with 19% intra-regional trade in Latin America, 51% inAsia, 54% in North America and 70% in Europe.

• The low level of intra-African trade can change if Africa effectivelyaddresses supply side constraints and weak productive capacities,infrastructural bottlenecks, trade information networks, access tofinance for traders and other economic operators, trade facilitationand trade in services and free movement of people.

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Objectives of the AfCFTA• To overcome dependence on exportation of primary products and promote

social and economic transformation for economic growth, industrialization andsustainable development in line with Agenda 2063;

• AfCFTA is a flagship project of the AU blueprint and Masterplan ie Agenda 2063– The Africa We Want, which was signed during the Golden Jubilee of May2013

• Achieve a comprehensive and mutually beneficial trade agreement among theMember States of the African Union.

• Boosting intra-Africa trade

• To create a freer market for goods and services, building upon the tradeagreements within the regional economic communities and associatedcommitments and thus pave the way for accelerating deeper integration

• The AfCFTA seeks to combine the economies of 55 African states under a pan-African free trade area comprising 1.35 billion people in a market with acombined GDP of $3.4 trillion.

21st March 2018: 10th Extraordinary Summit in Kigali, Rwanda:HE President Paul Kagame; HE President Issoufou Mahamadou; HE Moussa Faki Mahamat

Phases I, II and III • Phase I - Concluded in March 2018

AfCFA Agreement

Trade in Goods – outstanding work on Tariff Offers and Rules of Origin

Trade in Services - For Services, the priority sectors are: Transport Services egroad and air transport; ICT; Professional Services; Financial Services; and Tourism Services

Dispute Settlement Mechanism

• Phase II negotiations will further deepen the AfCFTA

Investment – Provisions on promotion, facilitation and protection to galvanise the investment needed to restructure Africa’s economies.

Competition Policy - Provisions to enable fair competition and market outcomes that stimulate industrialisation, competition and development.

Intellectual Property Rights - Provisions can incentivize increased innovation, ensure a level playing field and support trade

Phase III negotiations will be on

E commerce – Provisions on cooperation and use of ecommerce

Agreement Establishing the AfCFTAAgreement Establishing the African Continental Free Trade Area

Protocol on Trade in Goods

Annex 1: Tariffs Liberalization Schedule of CommitmentsAnnex 2: Rules of OriginAnnex 3: Customs Coop and Mutual Admin AssistanceAnnex 4 Trade Facilitation Annex 5: Non Tariff Barriers to Trade

Annex 6: Technical Barriers to Trade

Annex 7 : Sanitary and Phyto – Sanitary Measures

Annex 8: Transit

Annex 9: Trade Remedies and Safeguards

Protocol on Trade in Services Schedules of Specific Commitments

Regulatory Frameworks

Agreement on Investment Agreement on Competition

Protocol on Rules & Procedures for Settlement of Disputes

Agreement on Intellectual Property RightsUpdate on the CFTA

Signature, Ratification and Accession

RATIFICATION PROCESS IN KENYA

• The Ministry of Foreign Affairs has a Treaty Section within the Legal Divisionthat keeps records of bilateral and multi-lateral treaties involving Kenya

• The significance of a signature is captured well by the Kenyan Act ofParliament, the Treaty Making and Ratification Act, 2012 which states:

“signature” means an act whereby the State expresses its willingness toconsent to the text of a treaty and has the effect of obligating the saidState, even though it may not be a party to the treaty, to refrain, in goodfaith, from acts that would defeat the object and purpose of the treaty;

• Art 2:6 of The Constitution of Kenya has a provision for any treaty orconvention which has been ratified to be part of the law under theConstitution.

• Art 7 of the Treaty Making and Ratification Act, 2012 provides the procedureswhich must be followed in ratifying an international agreement - the Executiveinitiates the process and the responsible Cabinet Secretary for the treatysubmits the case to Parliament for consideration.

SIGNATURE AND RATIFICATION OF THE AFCFTA

• As on 1st April 2021, all member states of the AU, except Eritrea hadsigned the agreement;

• Signature: reflects a consent by the principals to the agreement

• Ratification: a step by a state towards making a treaty enforceable atnational level. International treaties therefore become effective uponratification. Ratification is undertaken by a country which participatedin the negotiation of an agreement or treaty and has signed the text.

• 36 ratifications as on 1st April 2021: Angola, Burkina Faso, Cameroon,Cape Verde, Chad, Congo, Cote D’Ivoire, Djibouti, Egypt, EquatorialGuinea, Eswatini, Ethiopia, Kenya, Gabon, The Gambia, Ghana,Guinea, Lesotho, Malawi, Mali, Mauritania, Mauritius, Namibia, Niger,Nigeria, Uganda, Rwanda, Saharawi Republic, Sao Tome andPrincipe, Senegal, Sierra Leone, South Africa, Togo, Tunisia,Zambia and Zimbabwe

• Those who ratified AfCFTA Agreement become State Parties

10 May 2018:Ghana and Kenya Ambassadors to Ethiopia and the Permanent Representatives to the Africa Union

Obligations from Ratification

• An undertaking to implement, and not toundermine implementation of an internationalagreement

• An undertaking to align national laws to theAgreement

• Alignment of all national laws within a State,so that they are all in harmony and furtherthe implementation, without any conflicts

• Alignment of procedures and systems

• Prepare staff and internal mechanism toimplement

Highlights: Protocol on Trade in Goods, Protocol on Trade in

Services and Dispute Settlement

OBJECTIVES OF THE PROTOCOL ON TiGObjectives as stated in Article 2 of the Protocol

1. The principal objective of this Protocol is to create a liberalised market for trade in goods in accordance with Article 3 of the Agreement.

2. The specific objective of this Protocol is to boost intra-African trade in goods through:

(a) progressive elimination of tariffs;

(b) progressive elimination of non-tariff barriers;

(c) enhanced efficiency of customs procedures, trade facilitation and transit;

(d) enhanced cooperation in the areas of technical barriers to trade and sanitary and phytosanitary measures;

(e) development and promotion of regional and continental value chains; and

(f) enhanced socio-economic development, diversification and industrialisation across Africa.

Tariff Liberalisation• 90% tariff lines will affect revenue figures, especially if your

trade was mainly with Africa

• Even when your trade was not with Africa eg importation of fuel from the Middle East, importers might divert from traditional suppliers and source it from others eg Central Africa or West Africa

• While customs duties go down – what is the impact on domestic activities – possibility of other tax heads eg VAT, domestic taxes increasing

• Similarly a trader in Africa whose only source of a product was eg Kenya has other opportunities to get goods from elsewhere

TARIFF IMPLEMENTATIONSTRUCTURE OF WCOs HS 2017

21 Sections

96 Chapters

96 Chapters 2 digits (01 to 97)

1222 Headings 4 digits (01.01 to 97.06)

5387 Subheadings 6 digits (0101.21 to 9706.00)

Chapter 77 reserved for future use by the WCO

Chapter 98 to 99 Local use

EAC Tariff Structure Rate No of Tariff Lines

0% 2128

10% 1159

25% 2335

Sensitive items with, eg 66

combination tariffs or

tariffs exceeding 25%

Total 5688

90% tariff offers would be 5120

TARIFF OFFERS• Following 41 countries including CEMAC, EAC, ECOWAS, SACU have submitted

tariff offers:

Benin, Botswana; Burkina Faso, Burundi, Cameroon; Cabo Verde; Chad; Central

Africa Republic; Congo Republic; Côte d’Ivoire; DRC; Egypt; Equatorial Guinea;

Eswatini; Gabon; Gambia; Ghana; Guinea; Guinea-Bissau; Kenya; Lesotho; Liberia;

Madagascar; Malawi; Mali; Mauritania; Mauritius; Namibia; Niger; Nigeria; Rwanda;

Sao Tome and Principe; Senegal; Seychelles, Sierra Leone; South Africa.

South Sudan; Tanzania; Togo; Uganda; and Zambia

• Of the above 41 countries the following 36 have ratified:

Burundi; Burkina Faso; Cameroon; Cabo Verde; Chad; Republic of Congo; Côte d’Ivoire;

Egypt; Equatorial Guinea; Eswatini; Gabon; Gambia; Ghana; Guinea; Kenya; Lesotho;

Liberia; Mali; Mauritania; Mauritius; Namibia; Niger; Nigeria; Rwanda; Sao Tome &

Principe; Senegal; Seychelles; Sierra Leone; South Africa. South Sudan; Tanzania; Togo;

Tunisia, Uganda; Zambia; and Zimbabwe

Purpose of AfCFTA Rules of Origin

• The AfCFTA has negotiated a transparent, clearand predictable criteria for determining the rules oforigin; This criteria is a separate Annex 2 of theProtocol on Trade in Goods;

• The overall objectives of the RoO are as follows:

-Deepen market integration in Africa

-Boost intra-Africa trade

-Promote regional and continental value chains

-Promote industrialisation

Origin Conferring CriteriaGoods are considered as originating if they have:

1) been wholly obtained or produced in a member, as defined egminerals, plant and plant products or

2) undergone substantial transformation in a member as defined.In this respect goods are considered to be sufficiently workedor processed when they fulfil one of the following criteria:

a) Value Added ie when they comply with the required criteria

b) non-originating material content as specified

c) change in tariff Heading; or

d) any other specific process eg extraction by means of selective solvents

Rules of Origin: Refrigerators HS 8418

COMESA – Manufacture in which the value added is atleast 25% of the ex-factory cost of the finished product

SADC - Manufacture in which the value of all nonoriginating materials used does not exceed 50% of theex-works price of the product

AfCFTA – Value of non originating material does notexceed 60% of the ex-works price of the product

Comparative Analysis: Rules of Origin on Tea and Coffee. HS 0902

COMESA – 35% value addition or CIF value of non originatingmaterials does not exceed 60%

SADC – Manufacture in which all Materials of this Chapter usedmust be wholly obtained; with exceptions on coffee and black teawhere manufacture in which the weight of the materials used doesnot exceed 40% of the weight of the product

AfCFTA - Manufacture in which all Materials of this Chapter usedmust be wholly obtained

Outstanding Issues on Rules on OriginThe following are amongst the outstanding issues, whichare subject to negotiations:

• Regulations on Special Economic Zones and theirpossible effect on Rules of Origin

• fisheries; edible oils; sugar; leather; textiles andapparel; and the automotive industry

• Manual/Guide on Rules for a common understandingon interpretation on the RoO

• Trade can proceed underway on the basis of thefinalised RoO

Trade in Services

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5 PRIORITY AREAS FOR TRADE IN SERVICES

Professional services

Information and Communication

services

Financial services

Tourism services

Transport services

Protocol on the Rules and Procedures on the Settlement of Disputes

• The AfCFTA Agreement has a Protocol on the Rules and Procedures on theSettlement of Disputes – this refers to the resolution of disputes. It providesclear rules on dispute resolution and guidelines with time frames

• DSM is along the lines of the WTO; AfCFTA Dispute SettlementMechanism is bound by rules in order to ensure that trade is conductedunder transparent rules

• Was negotiated by the Member States

• There are provisions for consultations and mediations

• Dispute can be initiated through any of the trading party, done by MS.Adjudication done by Panels and Appellate Body with clear time frames

• Final report is presented to State Parties for consideration

• More rigid and stronger that what is provided by RECs such as SADC orCOMESA

OPPORTUNITIES/ IMPLICATIONS

General Information• AfCFTA focuses on the continent and is a stage towards theestablishment of the African Economic Community

• Taking advantage of Government policy on economic and tradediplomacy, cooperation with government

• Trade liberalisation means opening up the market, industry must beprepared for competition

• Trade Remedies etc

• Trade Facilitation measures designed for the continent also benefitglobal trade

• NTB mechanism to report and deal with NTBs

• Readiness to do business within the continent

• What documents are required and who issues them?

• Capacity Building/Public awareness activities at national, regional andcontinental levels

Value Chains• Realisation that in certain industries we may not be ableto produce everything

• Building upon Kenya’s competitiveness in order todevelop National, Regional and Continental value inorder to have ‘Made in Africa’

• Kenya has a reputation for producing original andorganic products ie non GMO goods eg food, cotton etc

• These value chains can also be utilised to have Kenyalocal content into markets which we do not have accessinto

• Industrialisation

Exports and Imports Exports

Market IntelligenceApart from COMESA/EAC/SADC members, AfCFTA brought in over 25 countries more and new marketsSwot Analysis• The African Trade Observatory https://ato.africa/en/.

National institutions to build upon the work established by the AfCFTAdesigned to support micro, small and medium enterprises in Africa to

simplify their market research. · Export Promotion and developmentExplore market access conditions of African partners

ImportsAre the tariff offers available and accessibleAvailability of Information What documents are required

National Strategy

• Participation during engagements at national levels inorder to have coordinated planning and response toissues

• National implementation Strategy

• National Implementation Committees

OPPORTUNITIES AND THREATS• An open market of 1.35 billion in Africa

• Opportunities for investment, industrialisation, and Valuechains

• Trade facilitation within the AfCFTA and globally

• Cooperation with govt agencies involved in trade

• Competition will be open

• Products will be competing with the rest of Africa

• Rule based trading regime where countries will be accountable to one another for actions taken by their industries

CONCLUSION

Issues of Customs Cooperation Some of the major issues for Customs are:

• Interpretation and implementation of tariffs schedules and rules of origin

• Implementation of trade policy issues

• Trade Facilitation

• Border management

• Monitoring the movement of goods

• Exchange of information and cooperation when dealing with fraud

• Mutual Administrative Assistance eg capacity building

• Simplified and harmonised Customs procedures

• Security issues and protection of society

• Collection of statistics

What are the Implications to Strategic Partners

• Revenue Implications – MoF, Treasury, Budgets

• Trade Facilitation – Ministry responsible for Trade, TradeFacilitation Committees

• Security – National Security Organisations, Police Defence,State Security

• Manufacturers – Industry bodies,

• Transporters

• Clearing and Shipping Agents – frontliners in respect ofCustoms work

• Consultancy firms – Tax implications, issues on Investment,Competition, Trade in Services

• Customs to Customs, Customs to Business, Customs toOther Govt Agencies

• National Implementation Committees Interpretation and implementation of tariffs schedules and rules of origin

KEY ISSUES• Government has negotiated an internationalagreement with opportunities;

• What’s the niche for Kenya?

• There will be opportunities for investment,industrialisation, trade in goods and services etc,

• Capacity Building/Public awareness activities atnational, regional and continental levels

• National Strategies and implementation plans

• Work in progress eg trade facilitation issues,payment systems etc

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Thank you for your attention

[email protected]. [email protected]